DETERMINANTS OF CORPORATE LEVERAGE IN EMERGING ECONOMIES: THE ROLE OF FIRM CHARACTERISTICS, MACROECONOMIC CONDITIONS, AND INSTITUTIONAL QUALITY

Abstract

This study investigates the determinants of corporate leverage among firms in emerging economies, motivated by the need to understand how firm-specific characteristics and macro-institutional factors shape financing decisions.Usinga comprehensivepaneldataset offirmsacrossvariousindustries,theanalysisemploysordinary least squares (OLS), quantile regression, and sensitivity tests with interaction terms to capture heterogeneity in leverage behaviour. The empirical findings indicate that profitability, tangibility, inflation, and institutional quality are positively associated with leverage, while firm size, GDP growth, and interest rates exhibit negative relationships. Notably, the quantile regression results reveal that the strength of these associations varies across the leverage distribution, with profitability and institutional quality exerting stronger effects at lower quantiles. These insights underscore the importance of designing policies that enhance institutional frameworks, stabilise macroeconomic conditions, and promote access to diverse financing options. It is recommended that policymakers strengthen creditor rights, support alternative finance mechanisms, and implement macro- prudential measures to ensure sustainable corporate borrowing practices in emerging markets.